Belfast Telegraph

Home News World

Fed Reserve officials discussed possible US rate hike 'fairly soon'

US Federal Reserve officials earlier this month discussed the need to raise a key interest rate again "fairly soon", especially if the economy remains strong.

Details of the discussions in minutes released on Wednesday showed that while Fed officials decided to keep a key rate unchanged at their January 31-February 1 meeting, there was growing concern about inflation if the economy outperformed expectations.

"Several" Fed officials expressed worries that unemployment could fall substantially below the Fed's 4.8% goal.

That could trigger inflation pressures that would require the Fed to boost rates at a faster pace than financial markets currently expect.

Unemployment in December was 4.7% although it inched back up to 4.8% in January.

Most economists had indicated they did not foresee a rate hike until June.

But the discussion in the minutes might raise the possibility of a rise as soon as March.

At the February meeting, the central bank left its key interest rate unchanged while noting that the economy was continuing to advance towards its twin objectives of maximum employment and inflation rising at a moderate annual rate of 2%.

The Fed in December boosted its key rate by a modest quarter-point to a new range of 0.5% to 0.75%.

The Fed had waited a full year to raise rates for a second time after its initial rate hike in December 2015.

The Fed noted that even with the two small rate hikes, the Fed's target for its benchmark federal funds rate - the interest that banks charge each other - remained at a historically low level.

It is only slightly higher than the record low near zero where the rate was for seven years as the central bank struggled to jump-start growth in the wake of the worst economic downturn since the 1930s.

After the latest rate hike in December, the Fed issued an updated economic forecast which projected that the central bank expected to raise rates three times in 2017.

Many economists believe the Fed will raise rates between two and three times this year.

One complicating factor is the uncertainty over how much of President Donald Trump's ambitious economic programme he will be able to get through congress.

His stimulus package includes tax cuts for businesses and individuals, increased infrastructure spending and a rollback of regulations in such areas as banking.

Federal Reserve chairwoman Janet Yellen, delivering the Fed's semi-annual economic report to congress, said last week that the economy remains on track to achieve the Fed's goals and noted the Fed's December expectation of three rate hikes this year.

But she did not signal when the next rise might occur.

"Whether it is March, or May or June ... I can't tell you which meeting it would be," Ms Yellen told politicians.

AP

Popular

From Belfast Telegraph